New vision for Mobis

The South Korean auto parts giant Hyundai Mobis is preparing for a major global offensive on advanced technology segments, including vehicle electrification systems, advanced communications and driver-assistance features.

But first it has an internal task to take care of: It has to bring down its manufacturing costs to become more competitive.

The multiline supplier, which is the affiliated parts business of Hyundai Motor Group, intends to spend $7.8 billion to expand its presence in electrification and next-generation technologies, increasing its worldwide factory capacity for components such as electric vehicle batteries and boosting r&d spending to move ahead in new areas.

In January, it entered the market for head-up windshield displays with its first product debuting on the new Genesis GV80 crossover.

But the supplier has a larger aim: It expects to win business away from the industry's big competitors in Europe and North America, including Bosch, Continental and Magna International.

Long attached at the wrist to Hyundai and Kia, even relying on the automakers in the past for its R&D lab space, Hyundai Mobis is now making a run for it. Less than 10 percent of its business currently comes from outside the Hyundai family — Hyundai Mobis wants to increase that to 40 percent.

But to succeed, its executives freely acknowledge, the company is going to have to beat down costs.

"Almost all the major Tier 1s are now neck and neck on technology," Ahn told Automotive News. "What's differentiating companies today is cost. We have leading global technology. What we have to work on is the cost."

The stakes are high. Hyundai has a rich catalog of existing product lines, including chassis systems, steering technology, sensors, vehicle lighting, powertrains, fuel cells, cruise control systems, brakes and airbags. It also has a thick catalog of aftermarket parts that serve some 57 million Hyundai and Kia vehicles on the world's roads.

That's a competitive advantage right now for Hyundai Mobis, according to Ko Young-suk, vice president of Hyundai Mobis' planning division. Aftermarket sales represent about 15 percent of its revenue, which topped $32.45 billion in 2019, up 8.2 percent from 2018. Moreover, Ko pointed out, the aftermarket business delivers a rich profit margin that's now serving as a cash cow to fuel the company's expansion in R&D and future products.

That expansion includes a push deeper into batteries and fuel cell systems, traction motors, electronic controls, lidar technology, sensors and advanced safety platforms. The company is constructing a $322 million plant in the Czech Republic to produce EV components to support Europe's moves into electrification.

Hyundai Mobis also has earmarked about $125 million to support research and product development at automotive startup companies, Ko said.

"We look at the development work that needs to be done," Ko said. "Many startups and suppliers are already providing the software that will be required.

"To be competitive, you must have a very lean R&D. Investing in technology for fewer than 100,000 vehicles a year is not possible. Unless you change your business model, it's not sustainable to invest in new technology."

In the past, Hyundai Mobis has committed about 7 percent of its revenue to R&D activity. It now plans to increase that to 10 percent. Some of that additional spending will help the company bring down product costs.

The powertrain executive Ahn, who also is tasked with cost reduction, said it will be a multilevel undertaking.

"First, we have to reduce our material costs," Ahn said. The company is exploring the use of new materials, including polymers and composites, for some products.

"Then we have to cut costs on the manufacturing side," he said. "We will have to make it possible to use less material in our products. And they will need to contain fewer components.

"And then, we need to reduce manufacturing cycle time," he added. "And with that, we need to use less manpower, which will mean more automation.

"We are combining all those different aspects."

Company executives believe the mission to bring down costs will enable Hyundai Mobis to get its foot in the door with new customers around the world.

"If we don't get the purchase orders from OEMs now, it means we will not have the business for several years," Ahn said. "You have to get into the circle — even if you don't make any profits. Reducing cost is the war that many Tier 1 companies are waging today."